CVS uses its own pharmacy benefit manager to pad its revenues

CVS paid itself far more than some major competitors, report says

CVS used its role as a pharmacy middleman for the Ohio Medicaid program to pay some of its biggest retail competitors far less than it pays its own stores, according to a section in a state report that CVS is fighting in court to keep secret.

Critics say the state report is strong evidence that CVS was, in essence, using taxpayer money to give its own retail stores an unfair advantage in the marketplace.

At the same time this issue is being scrutinized in Ohio, CVS is attempting to convince a federal judge that its $70 billion proposed merger with insurance giant Aetna doesn’t pose a threat to competition in the pharmacy marketplace.

“This is startling information, the degree of difference” between what CVS was paying some large competitors and what it paid itself, said Thomas Greaney, former assistant chief of the U.S. Justice Department’s Antitrust Division.

Greaney, now a professor at the University of California Hastings College of Law, helped plan the American Medical Association’s opposition to the CVS-Aetna merger, which is now being reviewed by U.S. District Court Judge Richard Leon in Washington, D.C.

“I think this will certainly get his attention, that there is conduct consistent with the theory the Justice Department chose not to pursue,” Greaney said, referring to the fact that the Justice Department didn’t raise objections to the possibility that a merged company could use its clout as both an insurer and pharmacy middleman to stifle competition among retailers.

Indeed, Medicaid’s own report casts doubt on the notion that CVS reimbursements were sustainable for pharmacies that were its retail competitors.

And though CVS pharmacies were among those the report referred to, the same analysis found that CVS’ middleman arm charged taxpayers $197 million more for drugs than it paid pharmacies.

Walmart raised concerns about CVS’ practices by announcing last week that it was suspending most of its business with the pharmacy benefit manager, CVS Caremark.

The state then obtained all data from the $2.5 billion spent on drugs by Medicaid managed-care plans, and its analysis determined that CVS Caremark — which represents four of the five plans — and the other, OptumRx, were billing taxpayers 8.8 percent more for drugs than they were paying the pharmacists who dispensed them. That amounted to a $224 million differential. The state report said that the PBMs were charging Ohio taxpayers three to six times the standard industry rate.

As Ciaccia of the pharmacists’ association put it, “Caremark knows what they contracted to pay Kroger. Caremark knows what they contracted to pay Walmart. They have to know that when they slide an offer across the table to CVS, it’s a lot more.”

The FDA’s Drug Pricing Strategy: What’s New?

Since the release of President Trump’s blueprint for lowering high prescription drug prices, U.S. Food and Drug Administration (FDA) Commissioner Scott Gottlieb, M.D., has continued to implement the administration’s agenda for increasing market competition and transparency.

(The word “competition” or a derivative appears 26 times in this article and its accompanying timeline.)

Comment:

By Don McCanne, M.D.

I received a personal communication from a friend this week in which he informed me that the life-saving medication his teenage son is on costs $15,000 per week, and he may be on it forever. We can be thankful that the medication has been effective in returning him to a state of homeostasis with a normal lifestyle, but at that price?

It is no secret that the costs of pharmaceuticals and biologics are outrageous today. Polls confirm that the public is very concerned and wants something done about it.

The Columbus Dispatch article about CVS and its own pharmacy benefit manager middleman – Caremark – is only one example of how our reliance on competition in the marketplace to control drug prices has been a miserable failure. Yet as part of President Trump’s blueprint for lowering prescription drug prices, FDA Commissioner Scott Gottlieb wants to increase market competition – a concept supported in the article by former Democratic Congressman Henry Waxman and his colleagues (“competition” or a derivative appears 26 times in their article and illustration, 27 times if you count the references).

Competition is what we have now, and yet that exposes us to abuses like the CVS/Caremark conspiracy, and, worse, to $15,000 a week drug prices. When the private sector is failing us, that is when we need to turn to our own government for solutions. A great start would be to enact and implement a Single Payer Medicare for All program, with bulk purchasing and negotiated drug prices. If that still doesn’t work, maybe the industry needs to be threatened with nationalization.